Many businesses, whether small or large, are currently choosing development finance due to the outstanding benefits of this option. If you do not have a clear idea about development finance and the top benefits associated with it, then you have come to the right place. In this comprehensive guide, we will try to clear all of your doubts concerning this. So, first, let’s start our discussion by talking about development finance.
What Is Development Finance?
Development finance is considered a popular form of short-term finance, provided either for the development or refurbishment of a property. It is utilized chiefly for property development and construction projects.
The best part about this finance option is that one can use it to cover the associated costs of labor and materials of commercial and residential projects. So, whether you are an experienced, first time or new property developer, the schemes of development finance are available to you.
The main question that arises in this aspect is how much you can borrow by using development finance. It depends on several factors such as the build costs, the current value of the existing property or land, and the Gross Development Value.
This Gross Development Value or GDV usually refers to the estimated value of the completed project. In general, one can get the availability of up to 75% loan to GDV. For example, let’s consider the GDV is about £500,000; then, in that case, you can borrow up to £375,000.
Development finance provides an advantage to the borrowers in the way they can access large amounts of money. It is the most extensive borrowing facility presently available in the UK market. Once your loan is approved, you will receive funds for getting the project underway.
With the continuation of the project, the lender will release more money. The most significant benefit of this financing scheme is that you can get up to 100% of the overall construction cost. Due to this crucial advantage, currently, many people are seeking this option.
So, the lender does not provide you with the total amount borrowed in one go with development finance unless your project is small. In the case of development finance, your lender will release the additional amounts of money in stages, with the project’s progression. And this is where this financing option differs from the bridging loans.
-
Quick Access To Finance
You can get access to development finance very quickly. It is much faster than what you would expect with a mortgage application. So, if you are looking for a quick financing option for your development project, then development finance can be something that you will find convenient to go for.
-
Roll Up Interest
With development finance, regular monthly repayments are not required. In this case, you will find that the interest “rolls up”. So, you need to repay all of the interest and capital amounts at the term-end in a single payment.
-
Does Not Have Lengthy Repayment Period
The terms of development finance loans are generally between 6 to 24 months. It means that you do not have to take the stress of bearing the debt for a prolonged period.
-
Low-Interest Rates
The best part about development finance is that the interest rates, in this case, are not very high. Those who are experienced developers can expect to obtain lower interest rates when compared to inexperienced ones.
For larger projects, the rates might also be on the lower side. You should keep in mind that you will end up paying a lower interest rate if you borrow a lower proportion of the GDV. So, the interest rate charged by your lender will depend on the GDV.
-
Provides Opportunity To Refurbish The Property As Well
It is practically impossible to get a mortgage on a derelict property. So, this is where the role of development finance comes into play. By going for this particular option, you can consider borrowing money, especially under a development finance arrangement, refurbish the property and then sell it for a considerable amount.
-
Available On A Diverse Range Of Properties
Development finance is available on the properties that are newly built. Not only that, but it is also available for commercial premises, residential properties, and semi-commercial properties.
-
Helps You To Attempt More Ambitious Projects
By accessing development finance, you get the opportunity to undertake more complex development projects. It can make it easier for you to carry out several development projects simultaneously.
-
There Is A Limited Capital Outlay
You do not have to pay anything upfront other than any deposit which might be required. As a result, you can have money in hand to use it for other purposes, or else, it helps improve your general cash flow position.
Is A Development Finance Loan The Right Choice For Your Business?
We have enlisted some of the simple questions by answering them; you would be able to decide whether this financial option is suitable for your business or not.
- Are you looking for a short-term loan to assist you through your development project?
- Can you provide all the paperwork required for accessing the development loan?
- Are you confident that you will be able to repay the loan after completing the project?
If you have a positive answer to all of these questions, then surely, a development loan might be what you need. But, if not, then don’t worry; you still have many options left behind you. One of those involves bridging loans which you can go for after learning about this.
Looking for Bridging Loan?
Want to get an estimate of the amount you can borrow in case of bridging loans? Well, you can easily find this out by making use of the UK Property Finance’s bridging loan calculator. It also allows you to effectively compare different finance solutions to choose the best one for your needs.
UK Property Finance is a recognized financial broker, offering a diverse range of financial services such as development finance, bridging loans, mortgage finance, etc. Since 2003, we have been authorized and regulated by the Financial Conduct Authority. We offer the best market rate in the industry. Our expert financial team curates a customized financial solution based on your construction requirements.
Contact us today to speak to a business finance specialist who will help you learn more.
